3 Reasons Why Singtel Might Make A Turnaround

Singtel is one of those stocks that did not benefit from the Trump rally. Its share price has been almost flat year-on-year.

If the share price has been putting you off as an investor, DBS Research has three reasons for you on why you should own SingTel before its share price gets pushed even higher.

1. Special dividends from Netlink Trust to catalyse share price

Singtel managed to divest 75% of its stake in Netlink NBN Trust through an Initial Public Offering (IPO) in July 2017, as part of the regulatory requirement.

The divestment is expected to result in a net cash inflow of $2.2 billion in FY18 for Singtel.

Singtel has recently guided for 60-75% dividend payouts on underlying profits in the near term for its investors.

With the divestment from Netlink Trust, Singtel has the ability to issue ~$600 million to ~$1..5 billion in special dividends without hurting its credit metrics.

This will be on top of the dividend payouts on underlying profits from Singtel. DBS Research believes that the potential special dividend post-Netlink Trust IPO could be a catalyst for Singtel’s share price.

2. Expanding digital business undervalued

Group Digital Life and Cyber Security are already contributing over 9.0% to Singtel’s revenue.

Moving forward, Singtel is paving the way for its Digital Life segment to more than double its revenue to $1.2 to $1.3 billion with the acquisition of Turn.

Cybersecurity business on upward growth trajectory

Singtel’s Cyber Security segment will also grow at a significant growth rate of 16% to 37%.

Singtel strengthened its managed security services with the acquisition of Trustwave in 2Q16, a leading managed security service provider (MSSP) based in the US.

As a likely provider of network infrastructure facilitating the Smart Nation programme, Singtel would be among leading candidates for monitoring and managing cyber-security assets.

This will further boost growth prospects for the telco’s cyber-security division.

Regional associates saw their valuations climb about 38% over the past three years but that fact hasn’t been reflected in Singtel’s stock price.

DBS Research conjectures that the growing losses in the digital businesses might have suppressed it up till now.

However, with its digital advertising arm Amobee achieving an earlier-than-expected EBITDA breakeven in 1Q18, and official guidance for narrower digital losses in FY18F, DBS Research believes that investors will soon revalue Singtel’s digital business.